spin off

Share splits may make a stock more attractive to many investors, but it takes more than that to make it a buy.

YUM! BRANDS INC. $71 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 408.7 million; Market cap: $29.0 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.yum.com) plans to spin off its operations in China as a separate, publicly traded firm. The company will hand out shares in Yum China to its own investors, who won’t be liable for capital gains taxes until they sell them. The company aims to complete the spinoff by the end of 2016. Currently, as a unit, Yum China operates 7,176 fast-food outlets (as of December 26, 2015) under the KFC, Pizza Hut and Taco Bell banners. In 2015, this division supplied 53% of Yum’s overall sales....

These three leading fast food companies continue to launch successful new menu items, which is helping them compete with smaller fast casual chains like Chipotle and Panera Bread. They are also speeding up service and improving the quality of their stores. MCDONALD’S CORP. $117 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 918.2 million; Market cap: $107.4 billion; Price-to-sales ratio: 4.2; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.mcdonalds.com) plans to sell 4,000 of its company-owned outlets to franchisees. As a result, franchisees will operate 93% of the chain’s 35,000 restaurants by 2018, compared to 81% today. This will lower the company’s operating expenses and free it from maintaining and upgrading these outlets. In addition, McDonald’s plans to cut $500 million a year from its administrative costs by the end of 2017....

Tegna Inc. is using cash from ad revenue to pay down debt, buy back shares and purchase TV stations

ALPHABET INC., Nasdaq symbols GOOG (class C non-voting), $683.57, and GOOGL (class A voting), $703.76, is the new holding company for Google’s Internet search business and its smaller, riskier operations. These smaller businesses, which the company calls “Other Bets,” sell home thermostats and high-speed Internet and digital TV services. In the three months ended December 31, 2015, Alphabet’s revenue rose 17.8%, to $21.3 billion from $18.1 billion a year earlier, beating the consensus forecast of $20.8 billion. The main search engine business accounted for 99% of the total. That division’s revenue gained 17.7%. The number of paid clicks on advertisers’ ads jumped 31%, helping offset a 13% drop in the average amount advertisers paid per click. More people are using mobile devices to access the Internet, but advertisers pay lower rates for mobile ads because they’re harder to see on smaller screens. Revenue from Other Bets (1% of revenue) jumped 42.5%....

The most valuable advice I can give you today is this: don’t be too quick to take profits in your U.S. stocks. Since the 1995 launch of our first advisory service, The Successful Investor, we’ve been advising Canadian investors to include up to 25% or so of their portfolios in U.S. stocks The U.S. market gives you access to the world’s top stocks. These stocks come in a range of size and quality that’s largely unavailable in Canada. In 1995, many of these stocks seemed likely to get even more successful as years passed, and that’s what happened. We think things will work out much the same in the next 20 years....

The most valuable advice I can give you today is this: don’t be too quick to take profits in your U.S. stocks. Since the 1995 launch of our first advisory service, The Successful Investor, we’ve been advising Canadian investors to include up to 25% or so of their portfolios in U.S. stocks The U.S. market gives you access to the world’s top stocks. These stocks come in a range of size and quality that’s largely unavailable in Canada. In 1995, many of these stocks seemed likely to get even more successful as years passed, and that’s what happened. We think things will work out much the same in the next 20 years....

In today’s report, we look at a company that is the product of a successful spinoff....

Today, we look at a packaged food producer that has some of the strongest brands in the grocery store, such as Chef Boyardee pasta....

This will be our last Inner Circle Q&A for 2015. Our next issue will go out on Tuesday, January 5, 2016.

Now is a good time for me to say “Thanks!” to all our Inner Circle members. It’s a pleasure to read and answer your questions. I take great pleasure and pride from the many compliments and expressions of gratitude you send every week.

That’s especially true when I hear from a member who I recognize from decades ago—from the early days after the 1994 launch of The Successful Investor, or from the two prior decades that I spent at The Investment Reporter and MPL Communications.

It’s also great to see that our Successful Investor philosophy and practice have begun attracting more and more younger investors.

I wish you all a great year-end holiday and a healthy, happy and prosperous New Year!

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